Ungrandfathering Headwind Concerns Exist Ahead Of Netflix's Q3 Earnings Report

With Netflix, Inc. NFLX scheduled to report its Q3:16 results on October 10, Robert "Bob" S. Peck of SunTrust Robinson Humphrey expects the company to have seen continued subscriber headwind due to ungrandfathering, along with additional headwinds due to the Olympics.

Peck maintains a Neutral rating on the company and a price target of $100.

Q3 Headwinds

“We believe sentiment is cautious into the print given the 2Q miss and the commentary from management around further ungrandfathering and the historical impact of the Olympics,” the analyst mentioned.

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Peck expects Netflix’s international subscriber additions to be in line with the guidance for Q3 of 2.1 million paid and 2 million total subscriber additions.

“We believe guidance assumes an impact of ~0.7 million from ungrandfathering/Olympics, thus a ~0.5 million y/ y increase in normalized adds, consistent with trend,” the analyst stated, while noting the sentiment remains cautious.

Domestic subscriber additions are likely to also be in line with the consensus, as it has continued to face headwinds.

SunTrust’s survey data suggest churn of 5 percent for the ungrandfathered cohort, along with the Olympics, leading to elevated churn of 0.8 million.

The Positives

The positives for Netflix, however, include the additional MVPD distribution, new Disney content (Walt Disney Co DIS) scheduled to come online in Q4:16, China optionality and offline viewing.

The analyst also stated that the company had a strong management team, large TAM, scale-driven economic model and secular tailwind.

Full ratings data available on Benzinga Pro.